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M PRA

Munich Personal RePEc Archive

A systematic analysis of the preference


change in co-branding

Lee, Chia-Lin and Decker, Reinhold


Bielefeld Graduate School of Economics and Management
(BiGSEM), Germany, Department of Business
Administration and Economics, Bielefeld University,
Germany

17. December 2008

Online at http://mpra.ub.uni-muenchen.de/12249/
MPRA Paper No. 12249, posted 17. December 2008 / 23:37
A Systematic Analysis of the Preference Change
in Co-branding

Chia-Lin Lee1 and Reinhold Decker2

1
Bielefeld Graduate School of Economics and Management (BiGSEM)
2
Department of Business Administration and Economics

Bielefeld University – Germany

December 2008

Address correspondence to:


Chia-Lin Lee, M.B.A.
Bielefeld University,
Graduate School of Economics and Management (BiGSEM)
PO Box 10 01 31, D-33501 Bielefeld, Germany

Phone: +49(0)521-106-4862
E-Mail: clee1@wiwi.uni-bielefeld.de
1
A Systematic Analysis of the Preference Change in Co-branding
Chia-Lin Lee and Reinhold Decker

Abstract
This paper presents current theoretical and empirical findings on consumers’ preference change in
co-branding. We develop a conceptual model to illustrate consumers’ attitudinal changes in
co-branding based on the findings of Park et al. (1996) and Simonin and Ruth (1998), among others.
We argue that the attitude change is influenced by three important effects, namely the extension effect,
the mutual effect, and the reciprocal effect. It is shown how the interaction of these effects can be used
to systematically explain the rationale behind preference change in co-branding. So, our study takes an
initial step toward the understanding of the connection between consumer evaluation and the success
of alliance formation for adapting the Venkatesh et al. (2000) model. Finally, we provide suggestions
for marketing managers and motivate the need for further research in the field of strategic marketing.

Keywords: Co-branding, attitude change, preference change, consumer behavior

1. Introduction
Most firms nearly always search for potential growth opportunities in the market they serve.
One effective way is co-branding. Co-branding can avoid the possible failures derived from
over-leveraging the equities of existing brands (Swaminathan et al., 2001; James et al., 2006)
and can reduce the introduction cost of new products (Kotler and Keller, 2006). Examples of
co-branding include the Oral-B Rembrandt whitening pen, the Sony-Ericsson mobile phone,
and the NutraSweet sweetener in Diet-Coke. In the optimal case, co-branding strategies make
use of the salient attributes of the allying1 brands and offer opportunities for both players to
reach a new market. However, the existence of a co-branding alliance can also cause an en-
dogenous competition on consumer preferences (i.e., some consumers may change their pref-
erences from one of the partnering brands to the other).
Venkatesh et al. (2000) argue that the occurrence of preference change is crucial because it
influences the success of forming a co-branding alliance. However, their analysis totally ig-
nores an important issue behind preference change, namely the consumers’ evaluation of
co-branding, which is a major topic in co-branding research (see Park et al., 1996 and Si-
monin and Ruth, 1998). Therefore, the aim of this paper is to analyze preference change by
relating it to the overall evaluation process (i.e., to perceptions and attitudes). To our knowl-
edge, this study is the first one to provide a systematic analysis of preference change in the
context of co-branding.
The remainder of this paper is organized as follows. Section 2 provides some definitions
and a brief review of the co-branding literature. Section 3 summarizes previous findings on
consumers’ attitude change by means of a conceptual model. Section 4 offers a systematic
2
analysis of consumers’ preference change and applies the results in a three-brand scenario.
Section 5 concludes the paper with some discussions and a short outlook on future research
directions.

2. Definitions and Literature


The most common definition of “co-branding” (or “composite brand extension”, “brand al-
liance”) refers to the combination of two brand names to launch a single and unique product
for a short to long term cooperation (Park et al., 1996; Boo and Mattila, 2002; Kumar, 2005).
In particular, we exclude the terms “product bundling” and “joint sales promotion” because
they involve creating two or more products with the same or different brands (Leuthesser et
al., 2003; Hadjicharalambous, 2006).
There are mainly two types of co-branding. Joint venture co-branding refers to two compa-
nies financially cooperating to offer a co-branded product (Kotler and Keller, 2006). The re-
spective products are often from the same product category such as Sony-Ericsson mobile
phones. Ingredient co-branding refers to the fact that a branded ingredient is part of a product
introduced or promoted by another brand (Norris, 1992). Maybe the most famous example is
the personal computers featuring “Intel-inside”. The present study focuses on co-branded
consumer durables such as co-branded mobile phones.
Successful co-branding may appeal to the consumers because it reinforces the attribute pro-
files of the product (Park et al., 1996) and differentiates the product by offering quality assur-
ance to the consumers (Rao and Ruekert, 1994). However, there are at least three possible
problems when a firm wants to initiate a co-branding alliance. First, co-branding may give
one of the allying brands the opportunity to penetrate the other’s market (Leuthesser et al.,
2003). Secondly, the composite brand name may also dilute the brand equities of the partner-
ing brands (Leuthesser et al., 2003). Finally, a free-rider problem in sharing the profit may
exist when two brands have asymmetric contributions to the partnership (Simonin and Ruth,
1998).
Co-branding is regarded as one type of brand extension (Park et al., 1996; Hadjicharalam-
bous, 2006) and it is also considered as one type of new product strategy (Park et al., 1996;
Bouten, 2006; Hadjicharalambous, 2006). Therefore, marketing managers are not only in-
volved in the introduction process of the new co-branded product but are also interested in the
diffusion patterns. Figure 1 depicts the co-branding’s nature as mentioned above. If there ex-
ists a co-branding alliance formed by two specific brands, say A and B, the co-branded prod-
uct AB is therefore regarded as a new and extended product launched by these two brands.

3. A Conceptual Model of Consumers’ Attitude Change in Co-branding


Consumer evaluation of co-branding is an essential topic in marketing and the correspond-
ing cognitive process is a complex issue built on relevant psychological theories.2 In this sec-
tion, we therefore review previous research results on attitude change in co-branding and offer
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four statements for introducing three main effects that influence the attitude change.3

Figure 1: The nature of co-branding

Brand A Brand B

  Brand Brand
Extension Extension
 
  Co-brand (AB)
(Introduction of a new co-branded product)

3.1 The Mutual Effect


The influence resulting from the “product fit” and the “brand fit” is called the “mutual ef-
fect” in this paper. The product fit (Simonin and Ruth, 1998; Bouten, 2006) between the part-
nering brands has a direct impact on consumers’ attitudes toward the co-brand. Previous re-
search results show that if there exists a high product fit (e.g., because of complementing
product attributes (Park et al., 1996) or a high relatedness between the product categories of
the partnering brands (Simonin and Ruth, 1998)), consumers will have a favorable attitude
toward the co-brand. Many studies have used the product fit to construct a theoretical model
or to conduct an empirical analysis in the field of co-branding (Boo and Mattila, 2002; Bouten,
2006).
Another important factor is the brand fit. A high fit of brand image (e.g., Mercedes Benz
with Louis Vuitton) is proved to positively influence consumers’ attitudes toward the co-brand
(Simonin and Ruth, 1998; Bouten, 2006). That is, if the consumers perceive a distinct consis-
tency between the images of the allying brands, they will have a favorable attitude toward the
co-brand. This consistency can be reflected in the positioning strategy (e.g., both brands pro-
duce luxury products) and the overall performance (e.g., both brands are compatible in terms
of market shares or sales volumes in their respective markets). Based on the findings of pre-
vious studies, we can formulate the following statement(s) about the mutual effect:

S1: A good (poor) product and brand fit results in a positive (negative) mutual effect and
yields a favorable (unfavorable) attitude toward the co-brand.

3.2 The Extension Effect


The prior attitude toward the parent brand is associated with the attitude toward the ex-
tended product in the brand extension context (Aaker and Keller, 1990). It can be measured in
terms of the perceived quality (Aaker and Keller, 1990; Zeithaml, 1998) and the prior pur-
chase experience (Swaminathan, 2003). A high perceived quality or significant prior purchase
experience regarding the parent brands implies a favorable attitude toward them (Aaker and
Keller, 1990; Swaminathan, 2003). Hence, “high perceived quality” and “significant prior
purchase experience” can be utilized as indicators representing favorable prior attitudes to-

4
ward a brand. In addition, a significant prior experience can be used as a measure to represent
a higher level of brand loyalty (Swaminathan et al., 2001).
Several scholars have also argued that the prior attitude plays an important role in the eval-
uation process of co-branding (Simonin and Ruth, 1998; Boo and Mattila, 2002; Lafferty et al.,
2004).4 Among these studies, Simonin and Ruth (1998) claim that the prior attitude toward
one of the partnering brands is positively related to the consumer’s attitude toward the
co-brand and the post-exposure attitude toward that brand. Since co-branding is one type of
brand extension, we term the influence resulting from the prior attitude the “extension effect”.
Thus, the following two statements can be written down:

S2: A favorable (unfavorable) prior attitude toward one of the partnering brands results in a
positive (negative) extension effect and yields a relatively favorable (unfavorable)
post-exposure attitude toward that brand.
S3: A favorable (unfavorable) prior attitude toward one of the partnering brands results in a
positive (negative) extension effect and yields a relatively favorable (unfavorable) attitude
toward the co-brand.

3.3 The Reciprocal Effect


The reciprocal effect first appeared in the brand extension context (Aaker and Keller, 1990;
Lane and Jacobson, 1997; Swaminathan, 2003) but has been applied to co-branding as well
(Park et al., 1996; Swaminathan, 1999). Different studies use different names to term this ef-
fect, such as the feedback effect (Park et al., 1996), the spillover effect (Simonin and Ruth,
1998), and the post-effect (Leuthesser et al., 2003). In this paper, the reciprocal effect is de-
fined as an influence resulting from the attitudes toward the co-brand on each of the allying
brands. According to Simonin and Ruth (1998)’s study, the reciprocal effect yields a relatively
favorable (unfavorable) post-exposure attitude toward each of the partners. Therefore, we
conclude the following statement:

S4: A favorable (unfavorable) attitude toward the co-brand results in a positive (negative) re-
ciprocal effect and yields a relatively favorable (unfavorable) post-exposure attitude to-
ward each of the partnering brands.

In conclusion, the process of attitude change can be described as follows: The extension
effect and the mutual effect have direct impacts on consumers’ attitudes toward the co-brand
(cf. S1 and S3). The post-exposure attitude toward each of the allying brands will be affected
by both the extension effect and reciprocal effect (cf. S2 and S4). Therefore, the possibility that
a consumer will change her/his brand attitudes toward each of the partnering brands after the
alliance will depend on the strength of the interactions of the considered effects. Figure 2 vi-
sualizes this process.

5
Figure 2: A conceptual model of attitude change in co-branding
Prior attitude Prior attitude
Brand A Brand B

S2 S3 S3 S2

Attitude toward the co-brand AB


S1
Brand A Brand B

S4 S4
Post-exposure attitude Post-exposure attitude
Brand A Brand B

4. Analysis of Preference Change in Co-branding


Preferences are formed by the rank order of attitudes (Bass and Talarzyk, 1972). Hence, the
attitude change can also trigger a preference change. To further discuss the latter topic, we
assume that several brands (termed A, B and Y, Z in the following) exist in the market of in-
terest. Moreover, we consider two points of time as well as the intermediate period between
both. At the first point of time (t = 1), the alliance is formed by brand A and B and releases the
first co-branded product AB(1). Brand A and B are assumed to stop introducing their own
products after having started the partnership. At the second point of time (t = 2), the alliance
releases the second co-branded product AB(2). We further assume that a preference change
will only occur after having purchased the first co-branded product (Simonin and Ruth, 1998)
in the intermediate period, and the consumer preferences at time t = 1 are not affected by
co-branding. The sequence of events is summarized in Figure 3.

Figure 3: The sequence of events


The alliance is formed and The alliance launches
launches the 1st product AB(1) the 2nd product AB(2)

The consumers adopt the 1st co-branded product in the


intermediate period and can change their preferences.

First point of Second point


time (t = 1) of time (t = 2)

Besides, the considered market is assumed to comprise several market segments. The con-
sumers belonging to one segment prefer one specific brand. At the first point of time, we ca-
tegorize the segments into two groups: One group is composed of those segments preferring
the partnering brands (segment A and B) and the other includes the segments preferring the
competing brands (segment Y and Z). Since the rationale of preference change is identical for
each of the segments in the same group, we only focus on the process of preference change in

6
segment A and Z in the next sections.

4.1 The Preference Change in Segment A


At time t = 1 all consumers belonging to segment A have a favorable prior attitude toward
brand A and therefore prefer this brand. The preference change in segment A can be explained
by three routes (see Figure 4).

Figure 4: Routes of preference change regarding segment A


t=1 Segment A

Co-brand AB
A1

A2 A3

t=2 Segment A Segment B


Segment Z

4.1.1 Route A1
We argue that a certain fraction of the consumers in segment A have a stable preference at
time t = 2. This stable preference results from their extremely favorable prior attitude toward
brand A. In other words, a significant positive extension effect (according to S2) dominates the
evaluation process. Two supporting arguments are provided below.
The first argument is related to brand familiarity, which can be defined as “the number of
product-related experiences (product usage) that have been accumulated by consumers” (Alba
and Hutchinson, 1987). Based on this definition, those consumers with an extremely favorable
prior attitude toward brand A also have a significant prior purchase experience regarding this
brand.5 Since brand familiarity can positively moderate the impact of prior attitude on
post-exposure attitude (Simonin and Ruth, 1998), a high level of brand familiarity will lead to
stable preferences.
The second argument is related to brand loyalty. A favorable prior attitude implies brand
loyalty (Dyson et al., 1996). Those consumers who have an extremely favorable prior attitude
toward brand A can be assumed to be completely loyal to this brand. It is commonly recog-
nized that brand loyalty is highly resistant to change (Blackwell et al., 2005). Therefore, the
respective consumers are the most unlikely to change their brand attitudes after experiencing
the co-branded product AB, because they will ignore the potential inconsistent information
and defend their well-established attitudes (Smith and Mackie, 2007). Therefore, an extremely
favorable prior attitude toward brand A results in a stable preference.

4.1.2 Route A2 and A3


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Although the remaining consumers of segment A also have a favorable prior attitude toward
brand A, their attitudes are more amenable to change compared to those of the completely
loyal consumers (Swaminathan et al., 2001). Hence, at time t = 2, their preferences may stay
with brand A or switch to another brand depending on the different levels of perceived prod-
uct and brand fits.
If the respective consumers perceive a better fit from the alliance, a positive mutual effect
will exist and, subsequently, the consumers will have a favorable attitude toward the co-brand
AB (S1) as well as a positive reciprocal effect toward brand A (S4). The resulting favorable
post-exposure attitude implicates that the consumers still prefer brand A (route A2).
However, if the consumers perceive a poorer fit, their post-exposure attitudes toward brand
A will be unclear. The negative mutual effect (originated from a poorer fit), together with the
positive extension effect (S3), will influence their attitude toward co-brand AB (S1). The inter-
play may generate a favorable or an unfavorable attitude toward the co-brand and yield a pos-
itive or negative reciprocal effect (S4) on brand A.
Hence, consumers may still prefer brand A (route A2) because the rank order of their atti-
tudes at time 2 is the same as that at time 1. On the other hand, it is also possible that their at-
titude toward brand A is adversely affected and thus the rank order of their attitudes changes.6
In this case, the preference is likely to shift to any other competing brand (say, brand Z) or to
stay with brand B (route A3). The latter is called the “shift-in preference” (Venkatesh et al.,
2000) which means that some consumers shift their preferences from one brand to its partner.
Table 1 summarizes the interaction of the three effects and the preference change in segment
A.

Table 1: Preference change in segment A


Route Extension effect Mutual effect Reciprocal effect Final segment
A1 Highly positive - - Segment A
Positive Positive Positive Segment A
A2 Positive Negative Positive Segment A
Positive Negative Negative Segment A
Segment B (the partner) or
A3 Positive Negative Negative
Segment Z (the competing brand)

4.2 The Preference Change in Segment Z


At time t = 1, all consumers belonging to segment Z have a favorable prior attitude toward
brand Z and therefore prefer this brand. Their preferences may also change at time t = 2. Ac-
cording to Figure 5, we can use five routes to explain the phenomenon of preference change.

4.2.1 Route Z1 and Z2


We argue that one group of consumers has a habitual buying behavior due to the

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well-established attitude toward brand Z. Hence, these consumers’ preferences are stable
(route Z1). Besides, some members of segment Z are not aware of co-brand AB and may shift
their preferences to one of the remaining (but not explicitly considered) brands named Y in
our example due to variety seeking (route Z2).

Figure 5: Routes of preference change in segment Z

t=1 Segment Z

Co-brand AB Z1

Z5

Z3 Z2
Z4

t=2 Segment A or B Segment Z Segment Y

4.2.2 Route Z3, Z4 and Z5


The rest of the consumers in segment Z are assumed to purchase the first co-branded prod-
uct AB(1) in the intermediate period. In this case, the possibility of staying with brand Z
depends on the interaction of the strength of the three main effects. If these consumers have a
favorable attitude toward co-brand AB, a positive reciprocal effect on one of the allying
brands A or B will exist (S4). Besides, if these consumers have a favorable prior attitude to-
ward brand A, they will have a favorable post-exposure attitude toward this brand (S2).
Accordingly, their attitude toward brand A will be enhanced and the rank order of the brand
attitudes may change. Their preference is likely to stay with brand A (route Z3).
On the contrary, if the consumers have an unfavorable attitude toward co-brand AB, a nega-
tive reciprocal effect will exist and dilute their attitude toward brand A and B. Thus, their pre-
ferences will not stay with brand A or B at time t = 2.7 Depending on the rank order of their
attitudes, the preferences may stay with brand Z (route Z4) or shift to a different competing
brand Y (route Z5).

4.3 An Application: Preference Change in a Three-brand Scenario


Let us now assume that the market of interest consists of exactly three brands: A, B, and Z.
Brand A and B are supposed to form a co-branding partnership while brand Z is the competing
brand. Each brand is assumed to be preferred by one segment (e.g., segment A prefers brand
A), and each consumer prefers only one brand at a certain point of time. Besides, MA(1), MB(1)
and MZ(1) denote the sizes of segment A, B and Z at time t = 1; MA(2), MB(2) and MZ(2) represent
the counterparts at time t = 2.
9
The relationship between preference change and segment size can then be explained as fol-
lows: Co-brand AB is formed at time t = 1 and the consumers belonging to the three segments
may change their preferences at time t = 2. If so, segment size MA(2) of brand A will be com-
posed of three parts, namely FAA , FBA , and FZA . Here, FAA refers to the proportion of con-
sumers who stay with segment A, whereas FBA and FZA denote the proportions of consum-
ers who shift their preferences from brand B or Z to A. The same explanations can be applied
to the notations of segment B and Z. Figure 6 concludes this evolution and provides a simpli-
fied basis for deepening behavioral studies in co-branding (e.g., in a quantitative respect as
suggested by Venkatesh et al. (2000)).
Figure 6: Preference change and evolution of segments
Segment A Segment B Segment Z
t=1 MA(1) MB(1) MZ(1)
FAZ
FBA FBZ FZA
FAA FZZ
FAB FBB FZB

t=2 MA(2) MB(2) MZ(2)


Segment A Segment B Segment Z

5. Conclusion
5.1 Discussions
The incentive for a company to form a co-branding alliance is to gain an “added value”
from the partnership. This “added value”, among others, can consist of the opportunity for one
of the partnering brands to build up its brand awareness at the other’s customer base
(Kippenberger, 2000; Leuthesser et al., 2003). For instance, the co-branded credit card
Citibusiness / AAdvantage not only enables American Airlines (AA) to build up its brand
awareness in Citibank’s customer base but also provides an opportunity for Citibank to gain
more transactions from flight tickets purchased by AA’s customers who want to save the extra
miles.
However, if the above example is presented in the same product category, Venkatesh et al.
(2000) argue that the added value could cause consumers’ preference change (shift-in prefer-
ence) and the subsequent endogenous competition on consumer preferences. Finally, the alli-
ance may end up because of one brand’s loss in preference share. Hence, the preference
change plays an essential role in analyzing the success of alliance formation. This analysis
provides the grounds of preference change and takes an initial step toward the understanding
of the connection between consumer evaluation and alliance success (e.g., for adapting the
10
Venkatesh et al. (2000) model).

5.2 Future Research Directions


Several questions are left for future research. First, we did not include the influence of a
brand’s positions into our analysis (e.g., Sony-Ericsson or Ericsson-Sony), although the order
of the brand names can be assumed to influence consumers’ attitudes toward the co-brand and
the allocation of the reciprocal effect (Park et al., 1996). Future research could address this
issue. Secondly, we did not discuss the role that brand familiarity plays in consumers’ evalua-
tion of co-branding. Simonin and Ruth (1998) conclude that brands with different levels of
familiarity have unequal contributions to the formation of the composite concept which in-
volves an asymmetric reciprocal effect. One can then use the level of brand familiarity as a
weight to moderate the contributions to the alliance and the reciprocal effects on each partner.
Thirdly, we did not fully address the fit between the current and the co-branded products be-
cause we simply assumed that a better fit exists within our definition of co-branding. Finally,
when adapting the Venkatesh et al. (2000) model, one can utilize our analysis and add attrib-
utes for each brand to explore the relationship between consumers’ evaluation and alliance
success.

Endnotes
1. We use allying brands and partnering brands interchangeably.
2. Information integration (Anderson, 1981), attitude accessibility (Fazio, 1989), and context ef-
fect (Lynch et al., 1991) provide a meaningful foundation to illustrate consumers’ attitude
change in co-branding.
3. Here, the term “attitude change” refers to the changes of existing attitudes toward the parent
(partnering) brands.
4. Lafferty et al. (2004) examine the prior attitude in a cause-brand alliance.
5. As already mentioned, the prior attitude can be measured by prior purchase experience (see
Swaminathan, 2003).
6. This implies that the degree of favorability of brand A is lower than other brands and thus the
rank order is changing.
7. This result is a logical consequence of the preceding reasoning. Since the consumers’ initial
preference is brand Z and their attitude toward brand A (B) is diluted at time t = 2, they will
definitely not stay with brand A (B).

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